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Long-horizon investors may earn as much as 1.5 percent in additional returns annually, according to new research from Willis Towers Watsons Thinking Ahead Institute. The report, featuring input from firms including Hermes Investment Management, U.K. pension manager RPMI Railpen and Investec Asset Management, examined how long-term investors can add value to their portfolios. It also looked at short-term pitfalls that limit potential gains.

We are more certain than ever that the costs of developing the mindset and acquiring the skill sets to address long-horizon investing challenges are substantially outweighed by the return enhancements, said Michael Garcia, director of Willis Towers Watsons Thinking Ahead Group, in a statement Wednesday.

Among the return opportunities cited in the report were the well-documented illiquidity premium  the compensation investors earn for locking up capital  and the ability to exploit mispricing through smart beta strategies.

The consulting firm said that long-horizon investors can profit at the expense of short-term investors, who might sell assets below fair value in exchange for liquidity during times of market stress. They avoid the losses that come with buying high and selling low, as well as value-destroying, liquidity-driven sales, said Willis Towers Watson, estimating forced selling could lower returns by 1.5 percent to 2 percent annually.

A long-term approach means less trading, resulting in significant savings on transaction costs, the firm noted.

The report cited studies from McKinsey & Co. and Wilshire Associates that showed corporate engagement and ownership of long-term oriented firms also led to higher returns. For example, companies targeted by the California Public Employees Retirement System produced excess returns of 12.3 percent in the five-year period following corporate engagement by CalPERS, according to the report.

Capturing the benefits of long-horizon investing is likely to require a major shift of mindset and significantly expanded skill sets by investors, Garcia said. It is reasonable to assume the long-horizon premium exists precisely because it is so hard to capture.